Insurance Case Study

International Financial Reporting Standards ("IFRS/IAS") implementation for an insurance company

The Issue

In order to comply with the EU requirements to issue consolidated financial statements under the IFRS/IAS framework as at December 31, 2005 with comparative figures as at December 31, 2004, a major Luxembourg based insurance company initiated a project aiming at implementing a financial reporting process according to IFRS/IAS rules. This project was considered particularly challenging, as it required actuarial, financial and systems expertise.

The scope of the project included issues such as:

• Contracts classification under IFRS 4,
• Embedded derivatives in insurance contracts,
• Reinsurance accounting under IFRS 4,
• Staff group life covers under IAS 19,
• Deferral of insurance acquisition costs under IAS 18,
• "Unbundling" of unit-linked product offering additional benefits,
• Impairment testing on the investment portfolio,
• Provisions recognition under IAS 37,
• And IFRS deposit accounting for contracts regarded as investment contracts.

Our Approach

In order for the client to benefit from our experience and expertise in the IFRS/IAS area, we performed an initial review of the potential impact of the implementation of IFRS/IAS standards on the financial statements of the Company and highlighted the main differences between the accounting principles currently used by the Company and those required under IFRS. Then, we identified the significant accounts that would require adjustments to comply with IFRS.

A joint team composed of both accounting and actuarial specialists was set up to deliver value added recommendations as to potential accounting issues and options to be validated at Group Level and as to the impact of certain accounting options on IT systems requirements.

In parallel, potential plans for action were determined for all key issues identified.

The Outcome

The outcome of the project was a successful and timely analysis of the IFRS/IAS reporting framework including the early treatment of all significant issues. This enabled the company to evaluate the impact of the IFRS/IAS implementation on its current financial, reporting and IT processes and to prepare appropriate action plans with a view to compliance with the Group's IFRS consolidation requirements.